Simplifying a Financial Life
Second, this post is not about New Year’s resolutions. Mr. ToughMoneyLove sort of abandoned that whole concept a while back. Why? Because like so many others, I used it as an excuse to delay doing something that needed to be done now, not later. How many times did I say to myself “I will start my exercise (or diet, or savings, or love thy neighbor) plan at the beginning of the year!” Fortunately for my self-commitment credibility, I never actually specified which year. So technically I’m still in compliance.
Baby boomers – of which Mr. ToughMoneyLove is one – are prone to thoughts of simplification in all aspects of living. All of the years and experiences behind us have hopefully prepared us to better focus on those matters of greater importance in our remaining years. Honestly, we think a lot about those remaining years as we realize that compared to what’s already happened, what remains is in the minority. (That’s some hard truth right there.) That focus and those thoughts usually coalesce into a “I need to simplify my life” mindset.
So here are some random thoughts and ideas about simplifying a financial life. Some of them are practical. Some of them are more philosophical. Some of them (maybe even most of them) are probably obvious to you but I’m going to put them down anyway, just in case. It’s my blog and my life after all.
A first overriding principle in my plan (and I suggest in any plan) for simplifying a financial life is to identify those services and activities that I really enjoy. Then I direct my discretionary spending at those. Most people understand the concept of prioritizing their spending based on what they need and what they don’t need. Everything they don’t need is sort of lumped together into a discretionary category. At my age, that’s not good enough. What we spend our discretionary funds on is reflective of what we spend time on. For a baby boomer, time is a much more precious commodity than money. I will vigorously resist spending $200 to upgrade the vacuum cleaner because I’m thinking that $200 can be a plane ticket to visit family or friends. That’s time and money better spent.
Similarly, Mrs. ToughMoneyLove will gladly sacrifice the latest in human clothing fashion to buy a warmer blanket for her horse. She loves her horse very much. (I think I’m still ahead in the “love” race but it’s close.) I admire her for making that choice. Horses aren’t cheap but the pleasures they bring their owners are simple and pure.
So linking your spending to your true passions actually helps simplify finances, particularly when incomes are relatively fixed as ours will be before too long.
A second overriding principle for me in the finance simplification process is trading time for money. This applies both on the income side and the expense side. I want to use my money to buy time. I don’t want to use my time to buy money. I’ll give you one little example. I used to do a lot of work on our cars, starting with things such as changing the oil. Frugalists would say that I could save money changing my own oil. They would be correct. But that’s not simple enough for me. If I can buy an hour doing something I really enjoy, that’s what I will do with discretionary money. Changing my own oil costs me an hour.
I will confess that I cut my own lawn. I dislike lawn work. So am I being a hypocrite about the time vs. money thing? I think not. I cut my lawn for the ancillary cost-benefit trade-off: exercise. (No, I do not use a riding mower.) The combination of saving money (at least $50/week) and getting exercise is simple enough for me.
As a contrasting example, I have a small sailboat. I actually enjoy working on that boat. Why? Because the boat is simple in its operation and construction. It is not used for commuting to work. It is used only to bring me enjoyment. So I will pay someone to work on my car but not my boat. Simple as that.
I want to stop paying so many confusing bills. This is a difficult one because many of the bills we pay we have no control over: utilities, insurance, and the like. On the other hand, do you ever try actually understanding your phone bill, cable bill or satellite TV bill? I think they load it up with complex language to make you think that you are really getting something valuable for your money. Then they throw in a long list of itemized taxes and fees in hopes that you will direct your payment anger at the government, not the vendor. So must of us just search for the bottom line number and write the check or push the “send” button just to get it over with.
Our plan is to get rid of the land line phone bill altogether. That way I can concentrate my bill studies on the even more detailed cell plan! Also, that cable bill will definitely have fewer premium features on it. I never watch 50% of the channels anyway. Mrs. ToughMoneyLove and I are still negotiating that one. Offers and counter-offers are flying back and forth. We will close the deal soon.
I want to stop sending money to so many places I don’t like. Let’s start with the mortgage. We are paying it off next month. By doing that we get a secondary simplification benefit in our financial lives: no more itemizing deductions on our tax return. Just check that $10,900 standard deduction box and be done with it. I am so much looking forward to completing that simplification step.
I want to put our investments on autopilot. Most of this has already happened. It is too risky for a baby boomer in this period to leave the investment portfolio on full autopilot. What we have done is implement an asset allocation that needs only to be rebalanced, not adjusted with age. We have added some inflation protection. We are building a “weather the storm” retirement emergency fund to see us through down markets. With only one exception, we own index funds instead of managed funds. We will let all of that work together and hope that it does what it is designed to do. Part of leading a simple financial life is not having to spend too much precious time worrying about your investments.
Now that I’ve reached this point in my random thoughts on financial simplification, I realize that there must be a lot more I can do. So I will continue to ponder it but I don’t want to fret over it. That would defeat the purpose of it being simple.
Maybe some of you can help me out?
Image credit: Sigurd Decroos